When the Novelty Wears Off - Company Operations

Industry Standard, The, Nov 20, 2000 by Jennifer Couzin

In a bid to become a global marketplace, auction Atlas eBay is dealing in bigger, more expensive toys -- like BMWs and Hawaiian condos.

ebay EBAY

URL: www.ebay.com

HQ: San Jose, Calif.

CEO: Meg Whitman

EMPLOYEES: 1,600

REVENUE, LAST 12 MONTHS: $370.5 million

EBay has plenty of charming PR stories -- the mother who escaped welfare by auctioning off her heirlooms, the 1920s postcard fanatic whose collection exploded after he discovered the site. What eBay needs now are the Marty Newmans of the world.

Newman had bought dozens of knickknacks and novelties on the site -- a tattoo machine, some movie memorabilia -- but then he took the plunge and wired $27,000 from his bank in Indianapolis to a dealer in Texas to purchase a white '97 BMW 528i that he'd never seen in-person. It all worked out so well that he's currently scouring eBay to find a car for his wife.

To eBay, customers like Newman represent the future. Though in October the site reported impressive revenues of $113 million, company executives recognize that eBay must be more than an oddball niche where collectors gather to buy and sell snow globes and stuffed animals. It needs to be the place where Marty Newman goes to buy a BMW -- or a Dell computer or a Colorado condominium. Not that there's anything wrong with tchotchkes. After all, they're the foundation of the company's vibrant and profitable community of 19 million registered users. But if eBay is to survive and thrive as it enters its sixth year, it has to shift from novelty to necessity -- all the while maintaining the quirky appeal that attracted so many avid followers in the first place.

CEO Meg Whitman sees it as a natural evolution. "The challenge here is to grow a village into a city," she says. "But if you think about the urban metaphor, what happened as villages grew into cities is that there became neighborhoods." Whitman envisions an eBay made up of dozens of minicommunities, each centered on different kinds of products, where customers can still savor the fun of bidding, buying and selling.

To remain king of online auctions, eBay is branching out in several directions, selling more mainstream merchandise, pushing high-end auctions -- online and off -- and expanding aggressively overseas. Of all the Internet companies still up and running, eBay is perhaps the best-suited to pull off the balancing act between mass-market commerce and feel-good community. Despite eBay's rapid growth, its users still speak in glowing terms of its folksy, yard-sale atmosphere -- even when, like K.C. Quintana, they're putting hundreds of thousands of dollars on the line.

Quintana is a Florida resident who owns a small chain of taquerias. He was recently outbid on a package of four pieces of real estate in Hawaii. "It's an incredible thrill knowing that you could be spending $200,000, $150,000, $300,000 on this property," says Quintana, who has bought a Rolex watch and computers on eBay. "It's kind of exciting to keep track of."

Other auction sites have tried -- and failed -- to engage their audiences the way eBay has. Executives at Onsale, the first online auctioneer, say the thrill of their auctions has dissipated. Onsale, which became Egghead.com when the companies merged in November 1999, sells electronics equipment; it has increasingly found that its customers, many of whom are small businesses, prefer fixed prices to a bidding war. "Back in '94, '95, '96, what we were selling was the fun, the excitement, the idea that you're engaged in a game and you win," says Egghead CEO Jeff Sheahan. Onsale execs even named their company conference rooms after famous Las Vegas casinos -- the Bellagio, the MGM. But the excitement eventually faded. "It became a bit more about business," Sheahan says, "not just from the customers' perspective, but from our own."

That eBay became a business at all was a bit of a surprise to its founders, Pierre Omidyar and Jeff Skoll. The two men started the company in 1995 after a conversation between Omidyar and his girlfriend, a Pez collector. A Pez dispenser was the first item sold on the site. "I didn't really expect eBay to be the one," said a soft-spoken Skoll in an interview in August, still apparently bemused by his remarkable success. Omidyar and Skoll, who hopes someday to write historical fiction, hired Whitman in 1998.

Whitman, who came to eBay from Hasbro Toys, says there's an element of gamesmanship in the eBay model. "People relish the joy of the hunt, finding something they didn't anticipate, trying to make sure they win the item at the lowest possible price."

If eBay is to grow, however, it must succeed in sectors with a decidedly lower fun factor: big business and government. It recently signed a deal with the Walt Disney Internet Group to auction Disney memorabilia on the eBay site. The company is also moving into the fixed-price arena; it bought the used-book, CD and videogame site Half.com last June.

But auctions will remain a central part of the eBay business. More than a year ago eBay purchased Butterfield & Butterfield, the venerable auction house, and gaveled a minisite called eBay Great Collections, which focuses exclusively on high-end auctions. EBay also quietly launched a live-auction technology whereby online bidders can take part in offline Butterfields auctions. The idea is to give more people access to Butterfields merchandise -- and drive up prices.